Have you fallen on hard financial times and run up some debt on an existing line of credit? The average credit card debt of a family in the United States is $6,270.
If you have a past due payment on one of your credit lines, you may be contacted by a debt collector or attorney. Before things get to that point, you need to know more about your rights and how the process works.
Read on to learn the ins and outs of third party debt collection, and how to handle your situation the best way!
The Fair Debt Collection Practices Act
Being a debtor can be a stressful and uncomfortable situation. In short, you know you owe someone money but for one reason or another, you can’t afford to pay them back now.
The Fair Debt Collection Practices Act (FDCPA) was passed in 1978 as a way to protect debtors from repeated abuse and harassment by a creditor or someone acting on a creditor’s behalf.
The FDCPA governs how a creditor may contact you and when they can do it. For example, this federal law prevents a creditor from calling you before 8 am and after 9 pm local time.
The Demand Letter
When an individual or company cannot collect their debt from you, they may decide to send the debt to third party collections. This means there is a third party involved that is not the creditor or debtor. This third party is acting on the creditor’s behalf to collect the debt.
Instead of choosing a debt collector, a creditor may hire a debt collection lawyer. An attorney will often begin their communication with you by sending a demand letter.
In a demand letter, attorneys often attach a contract or invoice that supports the amount of the debt owed. An attorney will include a sequence of events leading up to the overdue balance and make a demand for payment within a certain amount of time.
When lawyers cannot get a debt resolved with a demand letter, they will usually take the next step in the process at their client’s directive.
Being Named in a Lawsuit
If you don’t answer a demand letter or resolve the debt with a creditor, you may be on the receiving end of a lawsuit. When you are sued as a debtor, you will need to be served with process papers.
This means receiving a copy of the summons and complaint. The purpose of this service of process is so that you are put on notice of the allegations being made against you and to have the chance to respond.
If you are going to dispute the debt and other allegations in the complaint, you will need to file an answer and affirmative defenses. If a complaint is legally insufficient, you may need a debt lawyer to file a motion to dismiss.
When you are served with a complaint but do not answer or file a motion within 20 days of service, you can have a default entered against you. This means that a creditor can then move to receive a Final Default Judgment against you for the full amount of their claim.
Entering a Payment Plan
Whether you receive a demand letter or after service of a Complaint, you may want to resolve the dispute by entering a payment plan. These are best for you as a debtor when you aren’t in a position to pay the full amount of the debt right now.
For example, let’s say you owe American Express $20,000. American Express hires an attorney to send you a demand letter to recover the full amount of the debt. You know you owe the money to American Express but you can’t afford to pay it all off right now.
In this instance, you will want to reach out to American Express to make a payment plan offer. You may offer to pay $5,000 down and then make monthly payments of $5,000 over the next three months.
At the end of the payment plan, you want to ensure the lawsuit is dismissed or that you receive some other document confirming your zero balance.
Life as a Judgment Debtor
Life as a judgment debtor can be a frustrating challenge at times. You become a judgment debtor when the debt you owe is reduced to a judgment against you.
After a judgment creditor receives the judgment against you, they will record it in the Official Records of the county where you reside and/or own property. They will also record a judgment lien in the state where you live. This puts other people on notice that you owe someone else money.
This can also hinder your ability to buy and sell a piece of real property. If you own a home free and clear of a mortgage, you may have to satisfy an outstanding judgment before you receive the proceeds of that house sale.
Depositions and Writs of Garnishment
Two of the most popular tools for a debt law attorney in post-judgment collection efforts are depositions and writs of garnishment. Before a deposition, you may be served with a subpoena duces cecum in aid of execution. This kind of subpoena requires you to produce many records under a court order.
Sometimes, there will be legal objections you can make to the production of the information requested. Speak with a licensed attorney about your options and their recommended course of action under the circumstances.
A writ of garnishment is used to freeze assets in a bank account or those owed to you by an employer. Subject to certain exemptions, the money in your bank account(s) may all go to a creditor in a garnishment instead of to you.
Learning How to Live Through Debt Collection
Although debt collection can make you feel uncomfortable at first, hiring an experienced lawyer can help you through the process. This will give you peace of mind that you are in good hands and have an advocate in your corner to help resolve the matter.
Are you interested in learning about other great ways to improve your financial situation? Check out our blog section for other posts about increasing your credit score and more!
